Alpha Coal, Limited, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company hasmineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associatedwith opening and operating a mine in the area:Cost of new equipment and timbersWorking capital required.Annual net cash receiptsCost to construct new roads in three yearsSalvage value of equipment in four years*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, taxes, and so forth.The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released forreinvestment elsewhere. The company's required rate of return is 19%.$ 410,000$225,000$ 160,000Required:a. What is the net present value of the proposed mining project?b. Should the project be accepted?Required AComplete this question by entering your answers in the tabs below.$ 65,000$ 90,000Required BNet present valueWhat is the net present value of the proposed mining project?Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.M

Net Present Value is defined as the sum of the present values of all future cash inflows less the…

Answered: Alpha Coal, Limited, is contemplating…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 320,000 $ 195,000 $ 130,000* $ 59,000 $ 84,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the…
Using the information in the following table , what is the depreciation expense per year created by the project? Dunaway Industries is evaluating the idea of expanding their production facility in Cobb County The CFO gathered the following data. Dunaway Industries spent $ 500,000 researching other sites for their expansion. The equipment needed for the expansion will cost $ 25,600,000 fully installed . The equipment will be depreciated over 20 years to a salvage value of $ 1,000,000 . Dunaway Industries uses straight -line depreciation . If Dunaway accepts the project , the company will sell the equipment for salvage value ( i.e.$ 1,000,000 ) at the end of the life of the project . If Dunaway Industries adds the new equipment , sales are expected to increase by 17,400,000 and costs are expected to increase by $ 10,000,000 . The appropriate tax rate for Dunaway Industries is 30% The capital of the firm includes 70% of equity and 30% of debt . Dunaway Industries recently issued a bond…
The Marigold Company is planning to purchase $577,000 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year 1 2 3 456 7 Total Projected Cash Flows $214,000 169,500 124,500 Payback period 55,200 55,200 48,500 The company 48,500 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. $715,400 years and (b) If Marigold requires a payback period of 4 years or less, should the company make this investment? months. make this investment.
Mountain Sounds Corp. is evaluating a cost savings project. The project's expected operational life is seven years. The project will save the firm $248,730 in net working capital, a one time savings for the life of the project. The project will require an investment in capital equipment of $5,631,945 and has an expected after-tax salvage value of $888,328. After considering the cash savings and depreciation impact the firm expects the project to generate operating cash flows of $1,034,805 each year for the life of the project. What is the NPV of the project if the firm's WACC is 8.9%?
Swifty Corp. is considering purchasing one of two new processing machines. Either machine would make it possible for the company to produce its products more efficiently than it is currently equipped to do. Estimates regarding each machine are provided below: Machine A Machine B Original cost $113,400 $270,000 Estimated life 10 years 10 years Salvage value -0- -0- Estimated annual cash inflows $29,700 $60,400 Estimated annual cash outflows $7,500 $15,000 (a) Calculate the net present value and profitability index of each machine. Assume an 8% discount rate. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 2 decimal places e.g. 589.71. Enter negative amounts using either a negative sign preceding the number e.g. -45.35 or parentheses e.g. (45.35).) Machine A Machine B
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Vaughn Company is considering a capital investment of $378,400 in additional productive facilities. The new machinery is expected to have a useful life of 6 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $18,920 and $86,000, respectively. Vaughn has an 7% cost of capital rate, which is the required rate of return on the investment. (a1) Compute the cash payback period. (Round answer to 2 decimal places, e.g. 2.25.) Your answer is correct. Cash payback period (a2) eTextbook and Media (b) Your answer is correct. Annual rate of return Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.) eTextbook and Media 4.4 years Net present value $ 10 Attempts: 1 of 5 used % Attempts: 1 of 5 used Using the discounted cash flow technique, compute the net present value. (Round present value factor calculations to 5…
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows wou be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years "Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18% Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be…
Carper Company is considering a capital investment of $400,000 in additional productive facilities. The new machinery is expected to have useful life of 6 years with no salvage value Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $25,000 and $90,000, respectively. Carper has an 10% cost of capital rate, which is the required rate of return on the investment. (a) Compute the cash payback period. (b) Using the discounted cash flow technique, calculate the NPV.
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years $ 54,000 Salvage value of equipment in four years $ 79,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. $ 480,000 $ 170,000 $ 185,000* The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the…
Crane Corp. is considering purchasing one of two new processing machines. Either machine would make it possible for the company to produce its products more efficiently than it is currently equipped to do. Estimates regarding each machine are provided below: Machine A Machine B Original cost $113,900 $278,300 Estimated life 10 years 10 years Salvage value -0- -0- Estimated annual cash inflows $29,700 $60,100 Estimated annual cash outflows $7,600 $14,800 Calculate the net present value and profitability index of each machine. Assume an 8% discount rate. Machine A Machine B Net present value top row, profitability index bottom row Which machine should be purchased? Crane Corp. should purchase select a machine .
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. The company estimated the following cash flows related to opening and operating a mine in the area: Cost of new equipment and timbers Working capital required. Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18%. Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? Complete this question by entering your answers in…

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